Mossack Fonseca and the Terrible, Horrible, No Good, Very Bad Day

mossack fonseca

“A blind domination founded on slavery is not economically speaking worthwhile for the bourgeoisie of the mother country. The monopolistic group within this bourgeoisie does not support a government whose policy is solely that of the sword. What the factoryowners and finance magnates of the mother country expect from their government is not that it should decimate the colonial peoples, but that it should safeguard with the help of economic conventions their own “legitimate interests.”” – Frantz Fanon, The Wretched of the Earth

“I did a lot of infrastructure development in my life. To fund them with foreign currency is madness. OK? Madness.” – Tidjane Thiam, CEO of Credit Suisse

Jürgen Mossack has had a good run. While Mossack and the firm he co-founded, Mossack Fonseca, will deny the illegality of their actions until the bitter end, it really does not matter. Their purpose, their utility to some of the most powerful and wealthy people of the world, was to keep their information and the information of their clients in the shadows. To not just protect capital from the oversight and taxes of the various applicable governments, but to protect these safe havens from scrutiny. While many of these accounts or the funds within them were illegal, what really matters here is that the capital has been exposed, and with that exposure it will be expected to re-enter various cycles of accumulation and consumption. The jig is up.

While this may be the most public unveiling of concealing capital in off-shore accounts, nonprofits and prosecutors have investigated these types of capital havens for decades. Corporations have been on the defensive, making pitiful arguments that they will create jobs and keep US companies competitive. But while shutting these practices down in the short-term is worth doing, it is only a band-aid to the tendency of corporations to search for and find ways to undermine the sovereignty of various nations.

Banks In The Deformed Globalized Neoliberal State

If there is anyone who is having a worst time than Mossack Fonseca, it may be Credit Suisse. And that started with the release of their abysmal first quarter reports. CEO Tidjane Thiam has blamed this leak on misplaced illiquid capital handled by its investment bank operations. But the Panama Papers have shown that this is only one of their problems:

Credit Suisse had this to say in response: “For Credit Suisse it is key that its clients use structures only for legitimate purposes, e.g. organizing the wealth of families that have a wide range of financial assets which are held in different countries.” [my emphasis added]

To find out where and why Credit Suisse is starting companies to store capital offshore, we have to leave Panama and go to a small island.


Oh no, not there. A different small island:


This is Guernsey. Guernsey is what is called a Group 1 jurisdiction by the G-7 Financial Stability Forum, the top group of offshore financial centers. In 1998, the Channel Island Stock Exchange was founded there, and within two years in 2000 it was trading £47,032,605 – in 2001, it traded £76,262,293. Why all the sudden interest in this little island off of the coast of France? It may have something to do with the loose regulations of the Banking Supervision Law of 1994. The main focus of this law to prevent fraud is to only allow banks to open branches on their island which have reputable branches elsewhere – banks like Credit Suisse. Another key event that made Guernsey look like an attractive safe haven for sketchy capital maneuvering was a bankruptcy court decision in Florida in 1997.

In In re International Administrative Services, Inc., a Florida federal bankruptcy court examined what to do about Defendant, International Administrative Serivces, Inc. who had declared Chapter 11 Bankruptcy but then moved assets, that a creditor had a claim to, to Guernsey. IAS Inc. provided financial services for clients, including putting out a magazine and running a financial advisory hotline. But, like many of the companies revealed in the Panama Papers, IAS Inc. actually only had one shareholder, a man named Charles J. Givens. And the company’s real purpose was to obfuscate “[an] extremely complex web of transactions between the Debtor [IAS Inc.] and insiders of the Debtor including Givens, numerous corporate affiliates of the Debtor, and various other third parties.” The United States Trustee Committee appointed to oversee the bankruptcy proceedings began to unravel all of this. Givens, in response, started destroying the relevant documents. Further, Givens was transferring assets from the company to other financial accounts. The Committee then moved, partially in secret, in Guernsey courts to have the assets of IAS Inc. frozen. Givens attempted to get this court order thrown out on a technicality – the Chapter 11 proceeding was through a Florida court, and it should have jurisdiction. But not only did the court reject this argument, on an issue of first impression it ruled that Guernsey courts were best situated to exert control over the businesses that operated there.

This principle is called comity, and it is generally what allows nations to operate cooperatively in an era of increasing migration and travel internationally. But in the case of an offshore capital haven like Guernsey, it prevents the rest of the world from going after the various assets hidden there without the explicit approval of the island’s courts. And what are Guernsey’s priorities and values? Among others, a 0% corporate tax rate, no capital gains, inheritance, capital transfer, value added (VAT / TVA) or general withholding taxes, and in general has a weak government not likely to interfere in anything but the most egregious criminal financial activities

In 2013, the Channel Island Stock Exchange was merged with the Channel Island Securities Exchange. It must have become huge, right? Actually in 2014 it dropped to £29,910,000. What happened? The Organisation for Economic Co-operation and Development happened. The OECD was originally created to administer the Marshall Plan, but recently has been interested in reigning in offshore havens. It considers tax policy a matter of sovereign entitlement, and it was able to pressure a host of countries including Guernsey to sign the Foreign Account Tax Compliance Act that year, which requires countries to disclose financial information with each other. But as the Panama Papers have shown, that has been more effective in some places like Guernsey (those 918 companies Credit Suisse created mostly happened prior to 2014) than in others.

The Illiquidity Of Capital In Liquidated Sovereignty

Offshore tax havens, as demonstrated by the OECD’s efforts, are actually pretty disliked by the capitalist countries of the world. But just like Republican Legislators are the most vocal about queer and trans perversion and yet can’t stop getting caught giving bj’s in bathrooms or hiring male escorts, offshore tax havens are as widely used as they are condemned. The most obvious example of this is Iceland. I won’t go too much into that, because the piece put out by SZ is phenomenal and well-worth a read. But in short, the very same progressive politicians who enjoyed support for their tough stance against Big Finance were themselves quite wealthy and storing at least some of that wealth in offshore tax havens.

Offshore tax havens are one of many ways in which capitalism cannibalizes itself. As an economic system it requires a flow of capital and accumulation by dispossession to keep itself running. Further, despite the delusions of the right wing libertarians and Randian blowhards, it is very much dependent on governments. Governments allow corporations to be created. Governments allow corporations to make policy that subverts the will of the communities it will effect. Governments allow corporations to be protected by the police and other law enforcement. Governments wage war to accumulate resources by dispossession, especially if the local communities are going to use those resources for the benefit of people over profits. You would think for all those vital services corporations would be grateful and not mind paying (in the US, 39.1%) some of their billions to keep this intact. But the only thing that has ever mattered to corporations is making a profit. Sure, there are “good” corporations that consider it “fair” to always pay their taxes: though with CEO turnover constantly getting quicker, who knows how consistent any of them can be. But regardless, there are at the very least individuals in the business world who understand the importance of government to their beloved “free” market. But morals have never been a very strong force in capitalism when a quick buck can be made or an edge over a competitor can be gained.

What is spectacular about the Panama Papers is that its sheer weight demonstrates the size of this contradiction in capitalism. Those top ten banks who created offshore companies alone facilitated 7,364. Most of these are owned by a single shareholder, and as the other findings show, this has implicated thousands of capitalism’s top tier. For all the governments who have implemented austerity against people of color and the poor over the past decade to preserve the various benefits that corporations enjoy, it must sting a little. The quote I gave above from CEO Thiam shows the hypocrisy of the private sector, especially when it comes to Africa: they will scold African countries from accepting “outsider” aid but have no qualms about exploiting any international loophole they can to increase their profits and benefit their ultra-wealthy clients. And Credit Suisse, in its relentless pursuit of profit by any means necessary, dug its own grave. But it is just the grave of the company: overwhelming, if it fails, the analysts, brokers, and executives will simply take their philosophies to anyone of the several financial companies that agrees wholeheartedly with them.

The Once And Future Nationalism

“Make America Great Again” is the slogan of presidential candidate Donald Trump. “The next president will sit down at that desk and start making decisions that will affect both the lives and livelihoods of every American, and the security of our friends around the world,” said Hillary Clinton in her recent speech to AIPAC. This year’s presidential election has been overwhelmingly inundated with one ideology: nationalism. Even Bernie Sanders, despite his praise for countries like Denmark, loves to evoke presidents like FDR and Dwight D. Eisenhower – wartime presidents back when the realities of war were regularly glossed over. All three candidates also talk a lot about corporations out of control, how it is hurting the country, and how they plan to restore the country to various apple pie times: Trump evoking an ambiguous white picket fence time, Clinton evoking the 90’s (when this dystopia was still in construction), and Sanders evoking the New Deal and high point of the [white, male] middle class in the 50’s and 60’s. It is funny how none of the various bullies on the Left bemoaning the prevalence of “identity politics” write much about how national identity has been the center issue of 2016.

And these three candidates represent the three major types of nationalism. Trump has his proto-fascism and Sanders has his benevolent social democratic state. But despite her allusions to the 90’s and the triangulation her and her husband pioneered (often quite literally), Clinton has no intention of turning back the clock to even an earlier stage of neoliberalism. Rather, as demonstrated in her AIPAC speech and in her ridiculous scolding as Secretary of State of the misogyny of countries which have had far more female electeds than the United States, Clinton wants to try to develop neoliberalism further in the hope that it will provide a solution to capitalism’s contradictions. When she says she would use Orderly Liquidation Authority if necessary to go after banks, I don’t think she is lying. I think she genuinely detests the corporations she believes are undermining the US government’s authority. But this anger is not at what happens to people, but rather the state, and in her ideal a state that facilitates capitalism through a myriad of privatization and public-private partnerships. She does not dislike the exploitation of the US people – she dislikes when corporations fail to recognize capitalism’s need for a state. Clinton, despite her questionable ethics and role within it, probably understands capitalism better than any other candidate. But no state, no matter how intermeshed and cooperative with the private sector, will ever be able to straighten out the contradictions inherent to capitalism. Today’s offshore tax haven will become a new loophole tomorrow, one that has already been too tempting for Clinton to resist.

Contradictions will come and go as long as capitalism is unchallenged, and not a single mainstream presidential candidate does that. Only socialism, and the end of the profit motive, will end the corruption revealed by the Panama Papers.

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